Just a few years ago, instead of watching just how far spot LNG prices in Asia could tumble, the opposite was true. In the aftermath of the Fukushima nuclear disaster in 2011 and the subsequent shutdown of Japan's 50 nuclear reactors needed for power generation, spot LNG prices in the region had a multi-year upward trajectory that finally saw prices breach the $20 per million British thermal units (MMBtu) price point by February 2014 - a price that caused considerable fiscal and trade deficit problems for Japan that had to quickly turn to the spot market to make up for lost nuclear power generation.
The ramp-up in prices at the time also came amid a much different market for the super-cooled fuel since supply was still limited and the LNG spot market in Asia was still developing. However, with an increase in supply from new projects in Australia, the US, Russia and elsewhere, global LNG markets entered a protracted and unprecedented supply overhang that persists to the present.
In lockstep with the ongoing supply overhang and weaker demand over the past few months, spot LNG prices in Asia last week dropped to a three-year low. Prices for April delivery to Northeast Asia LNG-AS dropped to $5.45/MMBtu, down 25 cents from the previous week. That was the lowest price point for mid-March since 2016. Trade sources estimated that prices for cargoes to be delivered in May would likely be at $5.50/MMBtu - little respite for already beleaguered prices.
Prices have been weak due to several factors. First, the past winter in the Northern Hemisphere was unseasonably mild, particularly compared to the previous winter, which had a knock-on effect of less demand from Asia's top LNG exporters - Japan, China, and South Korea. A warmer than usual winter in Europe also saw less LNG usage than the previous year.
Filled storage tanks
Moreover, the world's top three LNG importers (all in Asia): Japan, China and South Korea, already had ample supply going into winter, while China worked feverishly last year to fill underground storage tanks with gas to avoid a repeat of the previous winter when the country had gas shortages due to a then colder than usual winter and as Beijing replaced coal usage with natural gas too quickly. The Asia-Pacific region accounts for 72 percent of global LNG demand with that amount forecasted to hit 75 percent amid increased LNG procurement from China and other Asian countries. Related: LNG Sector Dangerously Dependent On Chinese Demand
India takes advantage of low prices
Another major takeaway from persistently low LNG prices on the spot market in Asia is India's increased procurement of the fuel. The country's Reliance Industries issued a tender earlier this month seeking 12 cargoes for April 2019 to March 2020, while Emirates National Oil Company had sought four cargoes for delivery into India over April to July, they said. India's GSPC and Torrent Power had also purchased spot cargoes earlier this month, Reuters said in a report.
Added to the current supply overhang, Egypt has rejoined the rejoined ranks of being an LNG exporter. Egyptian state gas company EGAS tendered to sell four cargoes of LNG for loading in April, people with direct knowledge of the matter said last week. The company is also marketing four cargoes for loading in May and three for June, Bloomberg reported, citing sources.
Egypt has quickly turned its energy sector around in just a few years. The African nation was earmarked to help soak up extra supply hitting the market as it sought to forge new LNG deals. However, the country has regained self-sufficiency with the help of major discoveries including the giant Zohr gas field. LNG is exported from the Damietta and Idku plants, which were largely left idle five years ago.
By Tim Daiss for Oilprice.com
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I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets… More